A proposed $1.56bn loan by the Nigerian National Petroleum Corporation (NNPC) is creating controversy as the House of Representatives and the Ministry of Petroleum Resources are unable to agree on the right classification for the loan.

While the Speaker of the House of Representatives, Aminu Waziri Tambuwal has declared that the proposed “loan” could not be found in both the 2013-2015 Medium Term Framework and the 2013 budget, the Minister of Petroleum Resources, Mrs. Diezani Allison-Madueke, said the fund was not a loan, but rather, a forward sales agreement between the NNPC and its trading partners, a position backed by the Group Managing Director of the NNPC, Mr Andrew Yakubu.

Tambuwal made his statement while opening the public hearing on the alleged loan by the House Joint Committee on Petroleum Resources (Upstream and Downstream), Aids, Loans and Debt Management and Justice.

Speaking through the Chief Whip, Ishiaka Bawa, he urged the committee to do a good job, saying that the public hearing was in alignment with the determination of the House, to not only deliver the dividends of democracy to the citizens, but also to ensure an entrenchment of good legacies.

He said: “The proposed $1.56 billion loan by NNPC is very important. Its importance is predicated on the fact that the loan was neither captured in the 2013-2015 Medium Term Framework, nor the 2013 budget.

“As a Parliament, we believe that if we continue on the path of truth, history shall vindicate us. I assure you that members of the Seventh Assembly are fully committed to bringing the dividends of democracy to our people, and ensuring that we have a policy that we shall all be proud of.

“It is on account of this belief that the House in its wisdom referred this matter to the committees on Petroleum Resources (Upstream and Downstream), Aids, Loans and Debt Management and Justice to investigate fully and report back to the House.”

The Speaker said the leadership of the House was of the firm conviction that the findings and recommendations of the committee would influence the direction of the House on the issue.

However, Mrs Allison-Madueke said the NNPC was not seeking a loan, explaining that what was being referred to was a forward sales agreement between the corporation and its trading partners.

This however failed to convince the lawmakers as many of them rejected the minister’s explanation, resulting in an argument.

Also, Yakubu, adducing reasons for the acceptance of the forward sales agreement by the Corporation, said it was to enable NNPC honour its obligations, “while addressing the risk of sovereign default and potential banking crisis that could ensue.”

He added: “Unfunded Federal Government’s expenditures over the decades, including but not limited to crude oil and product losses, pipeline security, demurrage on products strategic reserve stock, have resulted in periodic cash flows challenges to NNPC.

“NNPC has accumulated various legacy liabilities which were being settled periodically from internal resources. The cash flow challenges have severe opportunity cost and complicated contradictions in corporate operations.

“The NNPC import invoices are contractually obligated to be paid 45 days after laycan, but extended to over 360 days after laycan in recent time due to obvious cashflow challenges.

“The non-reimbursement by Federal Government of the Petroleum Products Price Differential to NNPC has gradually led to accumulated and unpaid petroleum products invoices of about $3.5billion,” Yakubu added.

“On account of this pipeline security issues and other severe operational losses NNPC has been unable to settle its obligations to the suppliers of petroleum products importers in a timely manner according to contracted terms.”

He listed some of the fallouts of the problem that the Corporation has encountered due to lack of funds to include traders (petroleum products importers) becoming agitated over non-payment of their Petroleum Products invoices some of which were over three years old., which has in turn caused their exposure of Domestic Banks to about US$1.5bn, and that the default of this magnitude of exposure could lead to another round of banking crisis.